Heritage (US:HGBL)2022-11-12 10:42Financial Data and Key Metrics Changes - The company reported operating income of $3.5 million for Q3 2022, a significant increase from $533,000 in Q3 2021 [8] - Net income was $2.3 million or $0.06 per share, compared to $474,000 or $0.01 per share in Q3 2021 [9] - EBITDA improved to $3.6 million from $638,000 in Q3 2021, with adjusted EBITDA growing to $3.8 million from $740,000 [9][10] - Stockholders' equity increased to $38.3 million as of September 30, 2022, from $32.6 million as of December 31, 2021 [10] Business Line Data and Key Metrics Changes - The Industrial Assets division reported operating income of $3.1 million in Q3 2022, up from $765,000 in Q3 2021, reflecting a substantial increase [8] - The Financial Assets division saw a 249% growth in operating income to $1.6 million compared to $449,000 in Q3 2021 [8] Market Data and Key Metrics Changes - The company experienced a more than 350% increase in asset sales in the Industrial Assets division compared to Q3 2021, with one-third of this growth attributed to the acquisition of American Laboratory Trading [6][8] - Services revenue grew significantly due to increased consumer spending and a rise in charge-off loans available in the market [7] Company Strategy and Development Direction - The company is optimistic about future growth across all five revenue streams, particularly in the Industrial and Financial Assets divisions [13][19] - The auction business has secured new five-year contracts with major clients in the pharmaceutical sector, ensuring revenue growth [14] - The company anticipates growth in the valuation market due to predictions of a recession, which typically increases demand for asset-based loans [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on the anticipated increase in nonperforming loans as COVID-driven aid ends [7] - The company is positioned to meet increased opportunities with a strong balance sheet, including a $10 million untapped credit line [7][10] - Management remains conservative in guidance due to the transactional nature of a significant part of the business, but is bullish on exceeding expectations [23] Other Important Information - The company has repurchased approximately 184,000 shares of common stock for an aggregate cost of $296,000 as of September 30, 2022 [11] Q&A Session Summary Question: Follow-up on guidance for net operating income - Management acknowledged a conservative approach to guidance due to the transactional nature of the business but expressed confidence in exceeding it [23] Question: Size of net operating losses (NOLs) - NOLs are approximately $78 million, with adjustments expected in the next quarter [24] Question: Breakdown of revenue by functional group - Management provided insights on the significant increase in asset sales, attributing one-third to acquisition and over 50% to organic growth [25] Question: Ratio of net operating income from industrials and financials - Management indicated that the contributions from both divisions can fluctuate based on market conditions, with potential for equal participation in revenue generation [30][31] Question: Deployment of the expanded $200 million line of credit - Management indicated that they have deployed $80 million to date and anticipate deploying the new line within 36 months [33] Question: Sourcing and demand for loans in the lending group - Management detailed the niche focus on servicing a limited number of clients in the charge-off loan market, emphasizing their expertise in underwriting [39][40] Question: Impact of interest rates on lending margins - Management confirmed that they negotiated a fixed rate for the new funding facility, which will not increase even if traditional rates rise, potentially improving lending margins [44][45]